Coal supplies 55% of India?s primary energy and coal-fired power plants produce 80% of our electricity. Yet year after year, paucity of coal results in blackouts and unscheduled power-cuts, holding back valuable industrial and agricultural production. But far-reaching policy changes, needed to augment domestic coal availability, are being pushed

under the carpet.

Over the last decade, our coal production has grown at 5% CAGR. Yearly demand of power, steel and cement industries, the major users of thermal coal, has been increasing by 8%, resulting in an ever-widening demand-supply gap. Planners admit that by 2016-17, the deficit would have increased from the current 105 to 250 million tonnes (mt). Yet the remedial measures are all too familiar baby-steps, viz the public sector behemoth Coal India Limited (CIL) and its seven subsidiaries exhorted by the government to extract and dispatch more; railways directed to run extra rakes to move it; and, in recent years, power-developers asked to import coal even if it costs thrice as much as domestic coal. Dependence on overseas supplies is growing for a country that has 267 billion tonnes of reserves, the third-largest in the world, and reportedly enough for 300 years at current trends of production.

There has been little attempt to revisit policies or the legal framework governing coal. Allowing CIL to set the price of coal and issuing notices for resuming captive coal blocks not commencing production are as far as policy interventions go. Clearly, the need is to significantly enlarge the quantum of coal mined?China produces three times more thermal coal than us. We hope to add 74,000 mw coal-based generation in XII Plan. This would annually require 350 mt of coal, besides 450 mt needed for the current 1 lakh mw capacity. Doubling up steel-making capability to 125 mt and expanding the cement industry by 7% per annum means another 100 mt. Given the persisting constraints on expanding nuclear and renewable energy and desirability of promoting steel and cement consumption, we would grow our dependence on the ?dirty fuel? in the short and medium terms. By the end of XIII Plan, we would, in fact, require 1,600 mt of coal.

Near-tripling the domestic output by 2022 requires technology, which would shift Indian coal mining underground from low yielding, environmentally less friendly and more land-demanding open-cast mining. Specialised firms with know-how, capital and managerial abilities to mine and move gigantic quantities, efficiently and cleanly, have to be brought in. Hitherto, the global majors have evinced little interest in making a ?back door? entry through captive-mining, into which private participation was enabled through two amendments to the Coal Nationalisation Act, 1973.

With 3,60,000 workers, CIL has, for 38 years, enjoyed protection from competition. Even the Union coal minister, who does not mind its monopoly continuing, recently admitted that a quarter of its produce is lost through thefts, corruption and other operational inefficiencies. For the last two years, its annual coal output has remained 431 mt and maintaining it this year is proving a daunting task. Yet, through hiking the selling price, it has increased the average realisation per tonne by 25% y-o-y. Its cash chest is a whopping R50,000 crore. It has been refusing to bind itself through any fuel supply agreements with power developers, to commit supplies beyond 50% of their annual requirement. Its success in off-loading last year a small governmental equity stake, rather than being an indicator of efficiency, characterises a monopoly able to set its own levels of output and price for a commodity, with huge unmet and growing demand.

The Union government will do well to harness its considerable political skills, as it did in 2007 to secure parliamentary approval for the nuclear civil cooperation deal with the US, for effecting changes in the Coal Act to introduce competition for CIL. Instead of endeavouring to altogether repeal it, the amended law, as a first measure, should provide for awarding of new mines for exploration and mining through competitive bidding. In this exercise, both PSUs and private companies should be allowed to participate. Separately, regulations would need to be changed to permit FDI in coal. CIL will face competition only in its expansion plans since existing mining assets would continue with it. However, with the coming of new players, benchmarks for operational efficiencies will emerge and this might threaten the numerous vested interests that have engulfed the industry. The government would have to skillfully neutralise their political mentors to push through its proposals. Already a template exists in the oil and gas industry, where private players, both domestic and foreign, were allowed to undertake exploration and extraction work in competition with ONGC and OIL

India. By all accounts, the makeover has had beneficial results, with hydrocarbon output, inflows of modern technology and capital increasing. Creating a coal regulator alongside will ensure a level-playing field for private operators vis-?-vis the government-owned operators.

As there may be apprehensions that the coming in of private players might drastically push up coal?s domestic price, a statutory prohibition on coal export could be considered. It would serve as proof of domestic interest being the prime mover for the reform measure. Alternatively, the entire coal produced from new mines should necessarily be required to be sold to a government marketing body. To incentivise the mine operators, sales by them should be at the prevailing market prices. In the absence of a free market for coal, the price obtained by CIL in its periodic e-auctions could provide a basis for determining the market price.

In such a scenario, allocation of coal and its pricing, as at present in the hydrocarbon industry, would remain in governmental purview. This should be an interim arrangement till such time as the country?s polity allows a commercial market for domestic coal to emerge. At that point, the legal dispensation could be further relaxed to permit private role even in marketing and distribution of the ?black gold?. An incremental approach in effecting changes in the regressive statute might not be the best way of going forward, but should be preferred to maintaining the status quo.

The author is a former secretary in the Union ministry of

commerce & industry